Adam Smith is considered to be the father of economics. Before him, economics was studied
as either a branch of politics called political economy or as an area of philosophy.
Economics was born as a distinct discipline with the publication of Smith's Wealth of
Nations in 1776. It was a remarkable book setting forth expositions of basic economic
ideas, which hold up very well today, along with a mind-boggling amount of factual data.

Among the most important and enduring contributions to economic
thought was Smith's explanation of the beneficial workings of the free market. He
explained market equilibrium as "the quantity of every commodity brought to market
naturally suits itself to the effectual demand. It is in the interest of all those who
employ their land, labour, or stock (capital) in bringing any commodity to market, that
the quantity never should exceed the effectual demand; and it is in the interest of all
other people that it should never fall short of that demand."

A major thrust of The Wealth of Nations was that
market prices and quantities should be permitted to adjust to their equilibrium levels
without any interference from the government. Smith was arguing in opposition to the
system of mercantilism under which the government exercised a great deal of control over
economic life. The government regulated production and trade with the objective of
bringing gold and silver into the coffers of the state.

Smith contended that a nation's real wealth would be
maximized by allowing individuals to make economic decisions based on the forces of the
marketplace, unhindered by government regulations. He maintained that in pursuing their
own self-interest, people would be guided by an invisible hand to maximize their
personal contribution to the economy as a whole. Smith's views had been greatly influenced
by the three years he spent in France associating with the French physiocrats. The
physiocrats promoted a policy of laissez-faire, which called for the government
to keep its hands off trade and allow prices to seek their natural level.

Because of his laissez-faire doctrine, Adam Smith
is greatly admired by economic conservatives today. But Smith was anything but
conservative in his day. He was, in fact, someone that today we might call a consumer
advocate, protesting the special interests backed by the government which profited at the
expense of the general public.

ADAM
SMITH

The Scottish economist and moral philosopher Adam Smith
(1723-1790) believed that in a laissez-faire economic system the impulse of self-interest
would work to promote the overall general welfare of the public.

"IT IS NOT FROM THE BENEVOLENCE OF
THE BUTCHER, THE BREWER, OR THE BAKER THAT WE EXPECT OUR DINNER, BUT FROM THEIR REGARD TO
THEIR OWN SELF-INTEREST"